FINLAYSON: Better gov’t policy would leverage well-educated workforce

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Canada is blessed with a relatively skilled and well-educated population. On some metrics we rank as the most highly educated country in the world.

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Specifically, looking at the percentage of the population aged 25 to 64 with a post-secondary credential — a degree, college diploma or skilled trades qualification — Canada sits at the top of the pack. In 2021, almost six in 10 Canadians in the 25-64 age group had completed some form of post-secondary education or training. Among all developed countries collectively, the average was 41%.

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Well-educated workforce

Canada is well-endowed with what economists call “human capital.” According to one widely cited report, Canada is among the world’s most “talented” countries, surpassing the U.S., the U.K., Germany and Norway, among others. This assessment is based on comparing education levels as well as the capacity of the working population to pursue continuous learning, to innovate and share knowledge.

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Yet despite these advantages, Canada has been losing ground on key indicators of economic wellbeing. In particular, Canada’s global position has been slipping in two important areas — the value of economic output (GDP) per person (an indicator of incomes and living standards), and productivity (an estimate of how much the economy produces for every hour of work).

In the case of per-person GDP, Canada posted the third-lowest growth rate among all advanced industrial countries from 2014 to 2023. On productivity, Canada’s performance has been dismal compared to the U.S. and other top-tier developed countries. Labour productivity in the broad Canadian business sector is less than 70% of the U.S. level; 25 years ago, we were 80% as productive as the U.S. And critically, these declines occurred prior to the trade disruptions caused by President Trump’s global tariffs.

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Why has Canada’s generally favourable position on education and skills seemingly failed to translate into faster growth in per-person GDP and productivity?

One obvious reason is lagging investment.

Business investment in equipment, machinery, advanced technologies, infrastructure and other tangible and intangible assets helps workers to be productive in their jobs. Unfortunately, Canadian business investment (on a per-worker basis) has been very sluggish over the past decade, dropping from $18,600 in 2014 to just $14,000 in 2024 (these figures are adjusted to strip out the effects of inflation). At the same time, investment per worker has marched steadily higher in the U.S., meaning American workers (on average) have more and better tools and equipment at their disposal than Canadian workers.

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Some studies estimate Canadian businesses, in aggregate, currently invest only 55%-60% as much as their U.S. counterparts, measured on a per-employee basis. And it’s not only the U.S. that’s doing better than us; many other advanced economy jurisdictions have also been outpacing Canada in the growth of business investment.

Investment in Canada is particularly low in machinery and equipment, advanced technologies and intellectual property — asset categories which are important in driving productivity gains in today’s fast-moving digital economy.

Time to tweak policy

Federal and provincial policymakers, including the former Trudeau government, have done little to address Canada’s serious and persistent investment shortfall. Under Trudeau, the priority was to rapidly expand the population via unprecedented inflows of immigrants — a strategy that manifestly failed to deliver improvements in economic wellbeing.

Looking ahead, governments at all levels must pivot toward a policy mix that’s designed to dramatically boost private-sector investment if we hope to fully leverage the strengths provided by Canada’s well-educated workforce.

Jock Finlayson is a senior fellow at Fraser Institute.

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